Incentive regulation in the United Kingdom and the United States: Some lessons

Summary and Conclusions This paper has reviewed the approach to incentive regulation in the United Kingdom and the United States. The United Kingdom approach has typically relied on pure PCR, incorporating much sharper incentives for efficiency and lower transactions costs, but it makes the company more of a hostage to the regulator. The United States approach, which is grounded or even mired in the legal system, gives up efficiency incentives in an attempt to avoid making the companies the hostages of regulatory reneging.²⁷ The papers in this Issue illustrate the broad scope of incentive regulation, from the purer forms of PCR to a number of variations and mixtures of PCR with other forms of regulation. The interesting theoretic results and the importance of achieving practical solutions in incentive regulation underscore the importance of the problems and approaches raised in this Issue.